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Asset Tangibility and Capital Allocation within Multinational Corporations

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  • Diemo Dietrich

Abstract

We investigate capital allocation across a firm's divisions that differ with respect to the degree of asset tangibility. We adopt an incomplete contracting approach where the outcome of potential debt renegotiations depends on the liquidation value of assets. However, with diversity in terms of asset tangibility, liquidation proceeds depend on how funds have been allocated across divisions. As diversity can be traced back to institutional differences between countries, we provide a rationale for multidivisional decision- making in an international context. A main finding is that multinationals may be bound to go to certain countries when financiers cannot control the capital allocation.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 4.

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Date of creation: Apr 2006
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Handle: RePEc:iwh:dispap:4-06

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Keywords: internal capital markets; multinational corporations; incomplete contracts; asset tangibility;

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Cited by:
  1. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
  2. Dietrich, Diemo & Hauck, Achim, 2014. "Bank capital regulation, loan contracts, and corporate investment," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 230-241.
  3. Diemo Dietrich & Uwe Vollmer, 2006. "Banks’ Internationalization Strategies: The Role of Bank Capital Regulation," IWH Discussion Papers 18, Halle Institute for Economic Research.
  4. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.
  5. Sorin Domnisoru & Sorin Vinatoru, 2008. "The Financial Audit Complexity of The Fixed Assets," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 49-62.

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